The Difference Between Good and Bad Debt
If you’re like most people, you probably think all debt is bad. After all, shouldn’t we all be working to pay off what we owe as quickly as possible? Well, not necessarily. You see, there’s such a thing as good debt. This is the kind of debt that can actually help you achieve your long-term financial goals. But how can you tell the difference between good and bad debt? Keep reading to find out.:
What is Good Debt?
Good debt is defined as any borrowing that helps you grow your wealth or increase your income. For example, taking out a mortgage to buy a home is considered good debt because, over time, your home is likely to appreciate in value. Taking out a loan to finance your education is also considered good debt because it should lead to higher earnings down the road. In general, good debt is loans that are used to purchase items that will go up in value or generate income.
What is Bad Debt?
Bad debt, on the other hand, is defined as any borrowing that does not help you grow your wealth or increase your income. Credit card debt, for instance, is considered bad debt because it’s used to purchase items that depreciate in value or do not generate income. Cash advance loans are also considered bad debt because they typically come with very high interest rates. In general, bad debt is any loan that is used to purchase items that will go down in value or will not generate income.
How to Tell the Difference Between Good and Bad Debt
Now that you know the difference between good and bad debt, you might be wondering how to tell them apart. Here are a few tips:
-Good debt typically has lower interest rates than bad debt.
-Good debt is often used to finance items that appreciate in value or generate income
-Bad debt is often used to finance items that depreciate in value or do not generate income
Bottom Line:
The next time you’re considering taking out a loan, ask yourself whether it’s good or bad debt. If it’s good debt, then go ahead and borrow what you need. If it’s bad debt, then try to find another way to finance your purchase. Remember, not all debts are equal! If you would like to learn more about debt click the button below to schedule an appointment.